Why Should You Use an EMI Calculator Before Applying for a Personal Loan?
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Why Should You Use an EMI Calculator Before Applying for a Personal Loan?

It’s prudent to look for a personal loan EMI calculator online and calculate your EMIs prior to applying for a loan.

Getting a personal loan has a reputation for being complicated, expensive, and intimidating – thanks to the traditional banks. The reputation seems to stem from difficult to understand loan terms, and confusion regarding the loan tenure, loan interest rate, and EMI amount.

MoneyTap’s personal loan EMI calculator (opens in a new tab) can help you clear your confusion by providing accurate insights and assisting you in making informed decisions. So, for those of you, who are not well-acquainted with the term EMI, let’s go through some basics:

What is EMI?

The term EMI is an abbreviation of Equated Monthly Instalment, which simply means a predetermined amount you are liable to pay towards your personal loan every month on a specified date, till the entire loan amount is paid off.

Your EMI is made of two components: Interest amount and principal amount.

Initially, when you start paying your EMIs, the interest component in the EMI is higher than the principal. As the loan tenure progresses, the EMI will have less of the interest component and more of the principal.

Factors Affecting Personal Loan EMIs

The following 3 factors affect your EMIs:

1. Loan amount

It’s the amount you borrow and is the primary factor that’s considered while calculating your EMI.

2. Interest rate

The interest rate is another critical factor that affects your EMIs. The lenders consider various factors, such as your income, credit history, repayment capability, etc. while determining your interest rate.

3. Loan tenure

It’s the period you choose to pay off your loan. The longer your loan tenure, the lower is your EMI and higher the interest outflow; the shorter the loan tenure, the higher is the EMI and lower is your interest outflow.

 How are EMIs Calculated?

To calculate a personal loan EMI, these three elements are at play: the loan amount, tenure and interest rate.

An EMI is directly proportional to the rate of interest offered on the personal loan amount and inversely proportional to the loan tenure.

Now with that knowledge, we can simply deduce that higher the rate of interest, higher will be the EMI.

AND

Longer the tenure; lesser will be the EMI.

Now, let’s understand how to calculate the personal loan EMI.

The formula is:

EMI = [P x R x (1+R)^N]/[(1+R)^ (N-1)],

Where,

P = Principal amount

R = Rate of Interest

N = Number of Instalments

The above formula will help you calculate the EMI manually. But, if complicated calculations scare you, there is an easier way out. Try a personal loan EMI calculator.

What is a Personal Loan EMI Calculator?

MoneyTap and many other banks and financial institutions offer a free online tool that calculates the personal loan EMI within seconds.

Why using EMI calculator is important before applying for a personal loan

Whether you have an existing personal loan, need a personal loan, or you’re just curious, a personal loan EMI calculator helps you with its insight and context. A personal loan EMI calculator can answer all these questions you may have:

  • What is the maximum personal loan amount I can afford?
  • How do I compare my existing personal loan offers?
  • How can I pay off my personal loan early?
  • If I increase my EMIs how much money will I save in interest?
  • How much interest will I pay on my personal loan?

Each combination of the three elements (namely, loan tenure, interest rate and loan amount) generates a unique result, helping you make an informed decision.

A personal loan EMI calculator is the fastest and the most accurate way of calculating your personal loan EMIs. Using the calculator before applying for a personal loan helps you with the following:

1. Plan your finances beforehand

Knowing the EMI in advance helps you plan your expenses accordingly. So, no missed payments.

2. Compare different personal loan offers

If you have a few good personal loan offers, a personal loan EMI calculator helps you take a closer look at all the offers and help you choose the best deal.

3. Decide personal loan tenure and principal amount

With the help of a personal loan EMI calculator, you can manipulate the values of the principal amount, interest rate and loan tenure as many times to come up with a result that’s most suitable to you.

— Author Bio —

Shiv NandaShiv Nanda is a financial analyst who currently lives in Bangalore (refusing to acknowledge the name change) and works with MoneyTap. Shiv is a true finance geek, and his friends love that. They always rely on him for advice on their investment choices, budgeting skills, personal financial matters and when they want to get a loan. He has made it his life’s mission to help and educate people on various financial topics, so email him your questions at shiv(at)moneytap(dot)com.

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